- Bitcoin closely followed the US stock market, while banks continuously bought more gold to reduce risks.
- The Perpetual segment has grown over the past week, Uniswap has two notable proposals, while the cross-chain bridge segment continues to be exploited by hackers.
- The Solana system received fuds regarding Phantom, Slope and Saber.
- Funds were raising capital in the past weeks.
Macroeconomics and Crypto in week 31/2022
Bitcoin closely follows the stock market
If you are attempting to forecast the Bitcoin price, you should consider macroeconomic factors as well as the US stock market.
2022 was a rough year for the stock market, with the S&P 500 down 14% and the tech-oriented Nasdaq down 22%. Given Bitcoin's growing correlation with the stock market, despite its higher volatility, it's no surprise that Bitcoin fell more than the stock market, by 51%.
There are two primary causes for this:
- Firstly, around May and June, several investors were obliged to sell substantial quantities of Bitcoin.
- Secondly, interest rates were raised to reduce inflation.
Rising interest rates, in particular, raise the cost of capital, causing stock prices to decline, with technology stocks falling the most. The more large institutions own Bitcoin, the more correlation Bitcoin has with the stock market.
On August 4, BlackRock, the world's largest asset manager with $9.57 trillion in assets under management, announced its entry into the cryptocurrency market. This is significant news as it indicates to other companies throughout the world that this is a legitimate investable asset class to invest. BlackRock, in particular, has teamed up with Coinbase to enable its users to purchase and trade cryptocurrencies, with a particular focus on Bitcoin.
The economy in the US is directly tied to the stock market. This country's economic status has recently been unfavorable. Specifically:
In the real estate sector:
- The median home price in the US dropped 12% in 2 months, the highest in history.
- Mortgage demand for real estate is at its lowest level since 2000.
- Housing supply has increased for the first time since 2019
- The number of properties sold reduced by 20% in July 2022.
In the vehicle sector:
- Vehicle debt has reached an all-time high of $1.5 trillion.
- 10% of total consumer debt is related to vehicles.
- One out of every 12 Americans is more than 90 days late on loans.
Additionally, household debt increased by $312B in the second quarter of 2022, to a record $16.15T. (according to the New York Fed).
As a result, if the stock market continues to plummet, so will the price of Bitcoin. However, the fact that many crypto investors have recently been forced to sell assets has created unique risks, implying that Bitcoin is unlikely to continue to decrease in price relative to the stock market.
Central banks around the globe continue to buy gold
According to the World Gold Council's most recent data, central banks around the world added 59 tons of gold to their reserves in July 2022, with no sales reported.
The Central Bank of Iraq, in particular, was the most recent gold buyer, purchasing 34 tons. This was the Central Bank of Iraq's first acquisition of gold reserves since its purchase of 7 tons in 2018. The Iraqi Central Bank now holds 130 tons of gold.
Uzbekistan purchased 8.7 tons of gold, after purchasing almost 9 tons three months earlier. Gold reserves account for more than 60% of total reserves in Uzbekistan. Furthermore:
- Turkey purchased 7.7 tons of gold.
- Kazakhstan purchased 4.2 tons.
- India purchased 3.7 tons, and many other countries.
In the second quarter of 2022 alone, global central banks purchased 180 tons of gold. This boosted the total amount in H1 to 270 tons. The amount of gold purchased in the first half of 2022 is equivalent to the average amount of gold purchased in the first half of the past five years (266 tons).
In 2021, central banks added 463 tons of gold to global reserves, an increase of 82% over 2020.
Gold acts as a long-term store of value or an inflation hedge. This is one of the primary factors influencing central banks' decision to store gold.
USD Coin on multiple blockchains
USD Coin (USDC) is a fiat-backed stablecoin that is pegged to the U.S. dollar. At the moment, USDC is the second-largest stablecoin in the crypto market, only behind Tether (USDT) in terms of market capitalization.
USDC has recently transformed and is on its path to supplant USDT as the stablecoin with the highest market capitalization. As of August 7, USDC has a market capitalization of over $54B, while USDT is over $66B.
The table below shows how much USDC is in each blockchain. With around 45.5 billion USDC, Ethereum has the greatest percentage, followed by Solana with 5 billion USDC. TRON came in third with 3 billion USDC while Polygon came in fourth with 1.5 billion USDC.
The remaining blockchains are Avalanche, Hedera, Algorand, Stellar, and Flow.
Events in DeFi in Week 31
Week 31 witnessed many significant events in the DeFi market:
- Nomad Bridge was hacked for $150M, while this project successfully raised funds 5 days earlier.
- The Perpetual segment has grown strongly in these two recent weeks, with top protocols such as dYdX, Perpetual, GMX.
- Uniswap has many notable proposals: onel for a 10% fee accrue and one to establish the Uniswap Foundation.
Below, insights about those events will be provided.
Growth in perpetual segment
Last week, the trading volume on GMX increased significantly. A possible reason for this growth is that users are hunting for the Arbitrum airdrop, as GMX is on this chain.
Transaction volume on GMX was at $100M/day on average, but last week it hit $200M/day and peaked at $800M/day.
Besides GMX, dYdX and Perpetual Protocol also witnessed notable growth this week. Currently, the trading volume of dYdX in the last 3 months is quite stable, especially in July, when the average daily transaction level exceeded $1B.
Regarding Perpetual Protocol, since May, Perpetual's transaction volume has decreased significantly from more than $335M/day to $10M/day. However, this past week, the volume has increased to $25M/day.
Exploitation on Nomad Bridge
Last week, Nomad bridge was exploited for $190M (returned over $12M), showing the current security status of the bridges. Since the beginning of the year, the amount of money exploited on bridges has exceeded $1B, including:
- Ronin was exploited for about 600M.
- Wormhole was exploited for about 300M.
- Harmony was exploited for about 100M and some other small bridges.
Even Thorchain, a liquidity network specializing in bridges, was hacked for the third time.
The future of bridges is extremely uncertain, when the top projects that are significantly invested also have many safety problems. Users should carefully consider before using these bridges, especially the liquidity provision on bridges.
Notable proposals on Uniswap
Last week, there were two proposals on Uniswap that received a lot of attention from the community:
1. Uniswap tested the 10% transaction fee on 3 trading pairs, including DAI-ETH-0.05%, ETH-USDT-0.3%, USDC-ETH-1%.
Based on the current volume of these 3 pools, it is expected that in 1 week, the collected fee will be $950K dollars. The amount of transaction fees collected will be put into Uniswap's treasury for many different purposes.
This proposal is seemingly getting community approvals. If approved, this 10% fee will be deducted directly from the fee received by liquidity providers on Uniswap.
2. The establishment of Uniswap Foundation (UF): to strengthen the decentralization of this largest DeFi protocol’s governing apparatus.
Events in ecosystems in Week 31
Exploitation on big Solana wallets
Last week, the Solana ecosystem witnessed a hack targeting wallet applications of this ecosystem, as well as suffered a lot of criticism from the market for "hacking" TVL in the ecosystem.
Regarding the hack, the attackers targeted assets such as SOL and USDC on Solana, mainly wallets that have been inactive for more than 6 months, targeting Phantom & Slope. Phantom is the most used wallet of the Solana system, so the number of users that could be affected by the hack is massive.
Currently, 4 hacker wallets are being monitored, and Solana has announced that this is not a network hack, the fault does not belong to Solana blockchain but belongs to the wallets developed on this ecosystem.
This is one of the first major wallet hacks on the market, and targets non-EVM chains that don't use Metamask. Users’ confidence in non-EVM wallets or even EVM wallets that have not been popular was shaken after this event, and they’re being more cautious in choosing wallets to use.
Saber ecosystem “faking” TVL
This is not the first time that this story was mentioned about the Saber ecosystem. When the TVL of this group of protocols developed on Saber peaked (Saber, Sunny, Quarry, ...), Solana was accused of “faking” TVL, because the assets deposited into Saber were deposited again into other protocols, causing the TVL to double quickly, while the input money in the ecosystem didn’t increase.
In the past week, this story repeated as the Solana system continued to receive "fuds" in terms of wallet security, and DefiLlama has come up with some solutions to provide data so that users can avoid the situation of TVL multiplication.
Fundraising events in Week 31
In the past week, 12 fundraising deals have taken place, with a total funding of up to $1.13B. After analyzing recent data on investment deals, there were some main insights:
- Funding this week tripled last week ($1.13B versus $400M), although the number of deals dropped from 32 to 12.
- However, two fundraising deals of two investment funds BH Digital and Lattice Capital were valued at $1.06B. Fundraising from investment funds accounted for most of the money this week.
- The infrastructure segment continued to be of interest with 4 deals for data, infrastructure, identity,...
- Two DeFi projects were invested, with a total amount of $10M, proving that DeFi is still less interested by funds compared to other fields.
BH Digital raised $1B
BH Digital is the crypto investment arm of Brevan Howard Asset Management, under the leadership of billionaire Brevan Howard. Founded in September 2021, BH Digital now has a total capacity of $1.5B for the crypto market.
According to a report from BH Digital, this fund only dropped 4-5% of its total asset value, despite a “bear market”. Brevan Howard Asset Management subsidiary BH Digital has reportedly raised $1B from institutional investors for its crypto strategies and is still accepting further investments.
After the last $1B fundraising, BH Digital has become one of the largest crypto investment funds in the world. In the future, besides other big VCs like a16z, DCG, Alameda Research,... ,BH Digital may become a notable VC in the market.
Variant Fund raised $450M
Variant Fund is a major investment fund in the Web 3.0 era, focusing on investing in the seed stage of the project.
Variant was founded by Jesse Walden, former program director of a16z. This fund has its own investment thesis called The Ownership Economy. This phrase has brought a new wave to the crypto community, and also to other major Venture Capitals.
Over the past week, Variant announced a $450M funding round for 2 of its new funds.
According to Variant, the new fund will be split as follows:
- $300M will be allocated to the “opportunity fund”, which invests in potential crypto project.
- $150M will be used to support emerging crypto startups.
Compared to the average capital raised by VCs in H1 2022, $450M is equal to the average. Although it is not as abundant as top VCs like a16z, Alameda, etc., this might be a remarkable VC in the capital raising market in the near future.
MarqVision raised $20M in Series A
MarqVision is an anti-counterfeiting company through its own AI system. MarqVision has built a SaaS platform, using AI to combat the fake products on e-commerce sites. In addition to helping traditional fashion products such as Hermes, LVMH, MarqVision's products can also be used on NFT exchanges and remove unoriginal works.
The capital will be used to develop MarqVision's SaaS platform. MarqVision's products will be very useful to both original producers and digital artists. This is a project using the creativity of NFT, bringing many useful practical applications in life.
Week 31 ended with many notable events in the market.
The price of BTC and the US stock index are highly linked, the fundraising market continues to be active, especially for investment funds, while the Solana ecosystem experienced many negative events, with the number of hacks increasing.
There have been increments in the bridge array, and the market is experiencing unpredictable fluctuations, so investing in this period may entail many risks.